Section: New Results

Interest rate modeling

A. Alfonsi, E. Palidda and A. Ahdida extend the Linear Gaussian Model (LGM) by replacing the constant convariation matrix by some Wishart dynamics. This extension allows them to generate smile while keeping the affine structure of the model. They have obtained a price expansion around the LGM for Caplet and Swaption prices. They also present a second order discretization scheme that allow them to compute exotic prices within this model.